Hiring the CFO in Small and Medium-Sized Enterprises

When owner-managed companies start out, their accounting needs are few and relatively simple. Cheques need to be cut, invoices need to be collected, people need to get paid, the government needs its taxes and so forth. Actually, most of what needs to be done in the name of accounting could be categorized as bookkeeping which is why owner-managers usually start out by hiring someone with bookkeeping experience to handle the company’s accounting function.

From Bookkeeping to Accounting

Bookkeeping is simply the clerical function of recording a business’ day to day operations and for owner-managers of small companies, that’s usually all that’s required. However, as a company starts enjoying success, the corresponding increase in size usually means an increase in complexity in plant facilities, capital expenditures, customer base, goods and services offered and so forth. This usually means that the owner-manager can no longer keep his or her eye on every moving ball and that’s when they need their bookkeeping function to evolve into a full-fledged accounting department.

Once the owner-manager has made that decision, they then need to figure out what level of sophistication and experience will be required to head up the finance/accounting function.

In order to address the question, we need to examine what an owner-manager could and should be expecting from the accounting function and by extension, the person who’s going to oversee that function.

The Five Accounting Functions

For most SMEs, the finance / accounting department has five basic functions:

1. Financial Accounting: financial information required by various outside stakeholders (not least of which is the CRA).

2. Management Reporting: financial information tailored to assist management run and monitor the performance of the organization.

3. Internal Controls: internal policies and procedures that protect the company’s assets.

4. Operational Input: financial modeling and advice in support of operational decisions.

5. Maximizing Enterprise Value: optimizing the company’s present day value and assist in realizing maximum value in the indefinite future.

Determining Horsepower

When considering how much finance/accounting horsepower they need to hire, an owner-manager has to realistically assess how much operational input they actually need (and will take) from their top finance person.

Someone who just wants timely and accurate accounting and financial reporting, adequate internal controls, required management reports and some operational input at the department head level should probably hire a Controller.

The owner-manager who wants all of those functions looked after plus meaningful input on operations and strategic decisions should look for someone with experience as a Vice President of Finance.

Where’s the Inflection Point?

Generally speaking, a business in a mature industry with revenues less than $25 million can usually get by with a Controller. Companies with revenues over $50 million, and especially companies experiencing rapid growth can usually make full use of a qualified, experienced Vice President, Finance.

A good way to start the hiring exercise is to enlist your public accounting firm partner. They should be able to help you map what you need from the finance function today and what you’re going to need five years from now. Once you have a comprehensive outline of what you want accomplished, build out your position description and then seek advice on appropriate qualifications, experience and compensation.

Recruiting for the CFO position in small and medium-sized enterprises can often be a challenging proposition. Yet if it’s done right, not only does the everyday finance function run smoothly, but the company’s operations and bottom line benefit as well.